Jun 15, 2016 · 29m · 20vc
20VC: Will LPs Replace GPs with Chris Douvos, Managing Director @ VIA
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, host Harry Stebbings interviews Chris Douvos, Managing Director at Venture Investment Associates, to explore the inner workings of Limited Partner (LP) investing. Douvos shares insights on early-stage co-creation, managing long liquidity cycles, evaluating non-consensus fund managers, and the emerging trend of LP-GP hybridization.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 26.2% of the talking time here. How this is scored →
Harry as informed peer 3.6 Guest teaching 4.3 Guest disagreement 1.6 Harry pushing back 2.0
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 16:15 Chris pushing back on 'hot funds' jargon
Chris explicitly expresses irritation with Harry's use of the term 'hot funds', calling out LPs for engaging in lemming-like behavior rather than disciplined underwriting.
Hardest push from Harry ▶ 21:56 Harry challenging LP disintermediationHarry directly confronts Chris's thesis on LP co-investing, asking if cutting out VCs as middlemen is potentially damaging to the broader VC community.
Biggest teaching moment ▶ 16:45 The 'Right and Alone' institutional risk frameworkChris breaks down LP institutional psychology using Lord Keynes and a 2x2 matrix, explaining why fear of career risk keeps LPs clustered in consensus investments.
Harry holds his own ▶ 9:19 Harry challenging micro VC white space claimsHarry uses feedback from current LP market pitches to press Chris on whether white space truly exists given the massive proliferation of micro VC funds.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Chris Douvos's Origin Story and Path to LP Investing | 1 | 2 | 0 | 0 | Harry asks a broad opening question about Chris's entry into LP investing. Chris dominates the segment with an anecdotal story about Mike Porter and Seth Alexander. The tone is lighthearted and conversational with zero friction. | |
| Extended Privatization and Managing 'Capital Constipation' | 4 | 4 | 1 | 1 | Harry demonstrates good background knowledge by citing Chris's prior writings regarding fund circularity and lengthening private company lifecycles. Chris elaborates on the concept of capital constipation and his counterintuitive strategy of investing earlier. | |
| Focusing on Co-Creation and Geographic Arbitrage | 5 | 5 | 2 | 4 | Harry challenges Chris's assertion about finding white space by pointing out LP complaints regarding micro VC saturation. Chris politely reframes the discussion, clarifying that he focuses on early co-creation rather than micro VC funds. | |
| Mitigating FOMO and Evaluating VC Relationships | 3 | 4 | 1 | 1 | Harry brings up the psychological dynamic of FOMO in VC-LP relationships. Chris shares insights on mitigating FOMO through early proactive outreach and using VCs' behavior towards LPs as a indicator of founder treatment. | |
| LP Ecosystem Dynamics and the 'Right and Alone' Matrix | 3 | 6 | 4 | 1 | When Harry asks about LP hustle using the phrase 'hot funds', Chris reacts with mild irritation at the term, criticizing lemming behavior among LPs. Chris then educates Harry on career risk using Keynes and his 'Right and Alone' matrix. | |
| Evaluating Non-Standard Fund Economics and Fees | 4 | 4 | 1 | 2 | Harry demonstrates research by bringing up specific premium fee structures like Sequoia's 3-and-30 and referencing Chris's 2013 comments on micro VC. Chris provides institutional context on calculating net returns and historical venture cycles. | |
| LP Co-Investing and Mitigating VC Capital Risks | 5 | 5 | 2 | 5 | Harry presents a direct counterargument asking if LP direct co-investing cuts out VCs as middlemen and harms the venture ecosystem. Chris defends the practice by explaining how LP capital helps micro VCs protect their ownership against late-stage dilution. |
Statements from this episode (11)
Douvos: LPs shorten portfolio duration by shifting into later-stage funds
“What I think most people are doing to deal with lengthening horizons. They're trying to shorten the duration of their portfolios by going to later stage.”
Douvos: VIA shifts allocations toward earlier, seed-stage companies
“And so I'm actually focusing my investing efforts on Earlier. And on, you know, even more nascent companies.”
Douvos: LP arbitrage comes from doing what investment committees fear
“If I had for my fund, a tagline for my investors, it would be doing the stuff that your investment committee is too scared to let you do.”
Douvos: How VCs treat LPs predicts how they treat founders
“The way investors treat LPs gives us a lot of insight into how they treat entrepreneurs. And if they're being heavy handed and arrogant with us, their shareholders, how are they with their customers?”
Douvos: Oversubscribed funds often result from LPs' lemming-like herd mentality
“Time and time again, we've seen funds kind of get attention and get, you know, kind of wildly oversubscribed only because LPs are demonstrating lemming-like behavior. And, you know, there's a favorite bell cow like, you know, Yale or Harvard or Stanford that t…”
Douvos: Outsized returns in LP investing require being right and alone
“So many people are deathly afraid of being wrong and alone because that box is the career risk box so that they'll slide over and try to do more things with the crowd. But what happens is when you move towards the crowd, then you take the right and alone box o…”
Douvos: Outperforming VC funds capture more economic surplus through higher fees
“At the end of the day, we have to make sure that we are, you know, getting, you know, net outperformance, right? You know, over time, you'd imagine that, you know, some funds who have generated performance are then able to extract, you know, more of that surpl…”
Douvos: Seed-stage VC is oversaturated with capital and a poor investment
“I think today it's the, you know, almost the opposite of a good time. I think there's just so much capital in the seed stage.”
Douvos: Most LP programs will evolve into hybrid direct-partnering models within 10 years
“And I think, you know, sitting here 10 years from now, most things that we think of as fund programs today will look more like hybrid programs with, you know, kind of closer ties, partnering more closely with GPs to look at companies rather than being, you kno…”
Douvos: Micro VCs suffer from undercapitalization and bad late-round terms
“Or one of the things that I think is an endemic problem to the micro VC space is that funds are undercapitalized and own too little and are kind of subject to the vagaries of later stage financing rounds where they may get, the rounds might get structured in w…”